Money Matters

Ravi Ranjan: I have recently opened a demat account and occasionally trade on stocks. I have short-term capital gains, which are now taxed at 15 per cent. Can you clarify how the taxation happens? Will it be calculated separately and added to the total taxable amount or will the short-term capital gains be added to my income and then taxed as per my tax slab?

Chetan Chandak, Head of Tax Research, H&R Block India, replies:

Short-term capital gains are gains from selling short-term assets such as shares held for less than 12 months. In this case, taxation on the amount from share sale is done as per Section 111A that specifically says all short-term capital gains arising from the sale of listed equity shares and equity-oriented mutual funds will be taxed at 15 per cent if these are subjected to Securities Transaction Tax or STT. Tax is calculated separately and added to the total tax liability.

Section 111A covers equity shares, equity-oriented mutual fund units and units of business trusts. The concessional tax rate also depends on whether STT is paid on such shares or units. However, starting from assessment year 2017/18, the concessional rate of tax at 15 per cent is applicable even where STT is not paid provided the transaction has been done on a recognised stock exchange located in any international financial services centre and the consideration is paid in foreign currency.

Hence, in this given case, you have short-term capital gains and the same will be taxed at 15 per cent. The tax will be calculated separately and added to the total tax liability.

Mutual Fund

Sushant Ghosh: The funds in my portfolio have given 40-50 per cent returns and I am quite happy. Should I book profits as I fear that the market may crash after being so bullish and I will lose all my gains?

Vidya Bala, Head of Mutual Fund Research, Fundsindia, replies:

Unless you need the money in the next one year, there is no need to book profits right now. Yes, the abnormally high returns may come down, but the cost of not staying invested is far higher than the cost of losing some money in any near-term correction. Instead of looking at absolute returns, keep in mind that your wealth will only compound if you stay invested. Booking profits and parking the same in savings accounts will not help you in your goal. If you have an asset-allocated approach (and not looking at short-term gains), you can protect your portfolio from excess volatility during corrections. However, you can take some profits off your equity funds and invest in debt funds and maintain that asset allocation.

Health Insurance

Rajeev Nambiar: I have purchased a family floater from Apollo Munich. Now that my wife is pregnant, will this policy cover the baby from day one? Apollo Munich said, no. So, is there any policy that covers the baby from the first day?

Generally, a newborn is covered under a family floater plan after 90 days. For instance, under the Apollo Munich Optima Restore Family Plan and Easy Health Standard Plan, a newborn is covered from the 91st day if either of the parents is covered under the plan. Star Health Insurance covers a newborn from the 16th day under its Family Health Optima Insurance Plan, but the coverage is restricted to `50,000 or 10 per cent of the sum insured, whichever is less.

On the other hand, maternity benefit plans such as Religare Health Insurance Joy Today/Joy Tomorrow and Star Wedding Gift Insurance Plan from Star Health Insurance cover newborns from day 1. However, they have a waiting period of 9-36 months before they provide maternity cover to the insured. These are costlier than regular family floater plans and the maximum maternity benefit is capped between `15,000 and `30,000 for normal delivery and `25,000-50,000 for caesarean delivery, including pre-natal and post-natal expenses. Also, health cover for a newborn is restricted to `50,000 for `5 lakh sum assured.

As your wife is expecting, the waiting period will not work for you and it is wise to stay put with your current health insurance plan. You can, however, check with your insurer when the newborn will be covered under your existing plan.

Auto Insurance

Sumeet Ahuja: I am planning to buy a new car and want to sell the old one. But recently, I have got an insurance cover for my old car. Can I get the insurance transferred to the new car along with the no-claims bonus or do I have to buy a new policy? If the transfer is possible, what is the procedure?

Yashish Dahiya, Co-Founder and CEO, Policybazaar.com, replies:

It is not possible to transfer the insurance, but you can transfer your accumulated no-claims bonus, or NCB, from the old car to the new one. The procedure is simple. First, you will have to transfer the current insurance policy to the person who is buying your old car and then apply for the NCB retention letter. However, you need to apply within 90 days of policy transfer. When you receive the NCB retention letter, send it to the insurance company from whom you are buying the policy for your new car. Remember that the NCB retention letter remains valid for three years only. Finally, it is recommended to start the procedure well before you buy the new car as it will take some time.